East Africa faces energy infrastructure issue

East Africa may be the new hotspot for explorers but the region will first need to invest in infrastructure to develop and transport the products for domestic and international consumption.

The region’s regulatory and infrastructure gaps could hinder the transition from gas exploration to production in the medium term, while governments need to be more realistic about timeframes for revenue flows, delegates heard at an industry conference in London on October 2.

 

The Eastern Africa Association’s chief executive, John Small, said companies are struggling to find drilling equipment as most of the discoveries are coming at the same time, while taxation issues can also delay projects.

 

Total now expects first commercial oil in Uganda in 2017, a year later than originally expected.

The French major entered Uganda’s nascent industry early this year after it and China’s CNOOC took a third of Tullow’s assets for $2.9 billion.

 

Mozambique, one of the world’s poorest countries with scant infrastructure, is in a strong position to cash in on its significant natural gas potential; Italy’s Eni and the US’ Anadarko Petroleum have discovered reserves of 100 Tcf in the offshore Rovuma Basin.

 

Houston-based Anadarko and its partners are currently designing an onshore LNG facility in Mozambique and hope to make a final investment decision on the first two LNG trains in late 2013 and to begin LNG exports in 2018.

 

Wood Mackenzie’s lead analyst Sub-Sahara Africa, Martin Kelly, said Anadarko and Eni will focus on exploration and appraisal work on existing discoveries over the next 12 months.

 

Anadarko, in particular, is targeting a deeper cretaceous oil play in the south of Area 1, which is the same oil plays that Statoil will be targeting in blocks 2 and 5 and Petronas in areas 3 and 6, Kelly said.

 

In Tanzania, BG Group said on October 2 that it has kicked off talks with Norway’s Statoil to cooperate on one LNG plant rather than build several facilities, as both companies ramp up their exploration campaigns to prove up commercial volumes.

 

BG Group’s head of commercial operations David Bishop said it started unitization talks with Statoil on September 24 on building the country’s first LNG plant.

 

BG’s partner is UK junior Ophir Energy, and its CEO Nick Cooper estimates that gross discovered in-place reserves for blocks 1, 3 and 4 in the Mafia Deep Basin are currently 13.5 Tcf, enough to justify volumes for a two-train LNG facility. Statoil and partner ExxonMobil have found around 9 Tcf in block 2.

 

Analysts have speculated that the Tanzanian finds are already large enough to support an LNG export development, shipping volumes directly across the Indian Ocean to Asia.

 

But Tanzania’s discoveries to date remain far smaller than the 100 Tcf already found off Mozambique and questions remain over the project viability due to the fast-growing costs of offshore LNG projects.

 

Kelly puts Tanzania’s recoverable gas reserves at 18 Tcf from the eight successful wells drilled against its estimates of Mozambique’s recoverable reserves at 85 Tcf from 12 successful wells.

 

“There is plenty of gas to support multiple LNG trains in Mozambique but we don’t think we are quite there yet in Tanzania,” Kelly said.

 

Cooper said Ophir Energy, which has a 40% stake in the Tanzanian concession, will likely sell part of it stake as the project moves toward LNG development. Though this will still depend on the availability of capital and the scale of the project, he added.

 

“These projects are massive on a country scale. We have to be realistic,” Cooper said.

 

While monetizing the gas poses challenges for the region, Kelly said there are numerous advantages that should make developments easier.

 

The tertiary aged reserves are of excellent quality, which should help the companies reduce the number of wells needed for gas development.

 

And the location of the fields, only some 50 km offshore, will reduce pipeline costs, he said.

 

Partners in Mozambique are a step closer to the development stage. Anadarko, in particular, is on the verge of awarding a FEED contract, and a site for the liquefaction plant has already been identified.

 

The question remains whether Anadarko and Eni can conclude a framework agreement with the government of Mozambique for the sale of LNG before BG and Ophir find more gas in Tanzania.

 

For East Africa to compete with other LNG project operators, who will also be targeting Asia-Pacific markets, buyers will look at factors such as gas quality and political risks, while security of supply will be an absolute key, as will economics, Kelly said.

 

Wood Mackenzie forecasts there will be a shortage of LNG in the Asia-Pacific region until 2019; with prices remaining high but easing off after 2019 as more projects come on stream, including those in East Africa.

Platts